The budget tax deal

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And so it is with budget legislation. The DFL Legislature has agreed to a tax bill and it is a good one — but getting there was an adventure.

What’s in

Governor Dayton campaigned on taxing the wealthy and to no one’s surprise this is the foundation of the new revenue package. We now have the 4th highest state income tax rate in the nation, but we have always been near the top. A major jump in the cigarette tax is also part of the package. Although this has regressive elements to it, tobacco has always added health risks to our budget and most Minnesotans lean favorably to this type of taxation. The Senate provision that added some business service taxes to the sales tax also ended up in the final product. These deal with warehousing and software services which don’t have much direct impact on consumers (although I am sure the GOP will be more than willing to point out that any tax on business ends up as higher costs to the consumer — we get it).

It is a fair package and makes some good investments.

What’s out

The House provision for a surcharge on higher incomes to pay down the school shift is out. And, to be honest, I think that is good. I tend to agree with an op-ed by Minnetonka Superintendent Dennis Peterson (examined in Minnpost):

The payment delay may have forced some districts to dip into reserves or engage in short-term borrowing. But to Peterson and many others, it was far less painful for school districts than comparable reductions in state aid.

Since the borrowing has already been done and since the school shift is going to be paid back within the next cycle, it seems unnecessary to add the surcharge on top of the new tax rate. If the school districts had been clamoring for a quicker return, it might have been a different story, but they are happier with the new education investments than they would be with an early shift repayment schedule.

The proposal on the alcohol excise tax is also removed. This had its share of controversy and the hospitality industry was pushing back. The concept was still sound and alcohol consumption is certainly discretionary, but given the choice of alcohol or tobacco, the cigarette tax is preferable.

Bottom line, for all of it, is that the needed revenue is available with a minimum amount of intrusion on the majority of Minnesota taxpayers.

What it pays for

The big investment is in education — a promise the DFL made throughout the campaign — and they delivered. In both K-12 and higher ed, education comes out the big winner.

But there is also $400 million in property tax relief — the details are still out there, but bigger rebates are part of the plan. And the city and county governments get exemptions on sales tax which will help enormously with their budgets.

Needless to say, the deficit is eliminated. But the bigger theme here is that there are no gimmicks; thus these changes will work to keep budget deficits to a minimum going forward. Not a full structural fix, but closer.

Other items

The Mayo Clinic proposal is in the package. I’m not sure the details are complete but it does seem to be a done deal. There were some arguments over the total package and who is in control. We will see the end product soon enough. Other business incentives are also included — which should have some direct impact on jobs. Another promise kept.

And the rest

Now that the tax package is agreed to, the other omnibus bills can get finalized. It looks like health and human services will get a $50 million cut instead of $150 million. A bit better. We also have a tricky little back up plan for stadium funding. Looks like existing tobacco inventory will be retroactively taxed and the money used to fund the stadium “rainy day” fund. Ongoing funding will come from one of those “mysterious” closed corporate loopholes. (It would seem that corporate taxation is about as stable as the proverbial finger in the dyke — close one loophole and another opens up.)

So now the race is on to get everything done before Monday night. The major conflicts are done, but time won’t be kind to the smaller arguments.